Management issues: Get involved in plugging opportunities for orphaned wells

There are several federal, state and Tribal grant programs in place to address orphaned wells across the United States. These initiatives are plentiful, and they provide unique opportunities for oil and gas industry executives to get involved at various stages. In this article, learn how these grant programs can help improve the orphaned wells landscape and how stakeholders can get involved with well plugging initiatives. 

BACKGROUND ON ORPHANED WELLS 

Oil and gas well drilling dates back to Aug. 27, 1859, in the U.S., with Col. Edwin Drake and the Seneca Oil Company in Pennsylvania.¹ Soon after this time, the new and unregulated industry experienced a boom, with thousands of wells being drilled and abandoned across the country. The well locations went widely undocumented, due to the lack of regulation, which led to these sites being deemed “orphaned” wells.  

Fast-forward a century and change, and we are still using this terminology. Orphaned wells are now more specifically defined; they are oil and gas wellsites that are no longer in use, have no identified financially responsible party, and their responsibility falls to the state in which they are located, Fig. 1.  

Fig. 1. Orphaned wells are wellsites that are no longer in use, have no identified financially responsible party, and their responsibility falls to the state in which they are located.

Currently, the number of existing orphaned wells is an unknown range, due to lack of documentation and the sheer number of wellbores drilled over the years. A study that looked at orphaned wells in state databases in 2022 indicates that there are 123,318 documented orphaned wells, Fig. 2.² However, conservative estimates suggest that there may be between 310,000 and 800,000 orphaned wells in the United States.³

Fig. 2. Distribution of documented orphaned oil and gas wells across the U.S., based on state databases as of April 2022 (left) and September 2021 (right). Data provided by sciencebase.gov.

Nevertheless, the prevalence of orphaned wells poses a significant environmental hazard to our communities, since methane emissions into the air and seepage into groundwater can occur at these sites. Moreover, research indicates that 4.6 million people live within a half-mile of an orphaned well.

For these reasons, it is imperative to act; plugging orphaned wells can help avoid dangerous environmental impacts and there is a myriad of programs available to get started.⁴ 

FEDERAL PROGRAM GRANTS 

Federal grants are part of U.S. President Joe Biden’s Investing In America agenda to invest in environmental impacts, specifically in the case of orphaned wells. Through this, the federal government distributes funding to states, local governments, and the private sector, to help them achieve policy goals.  

Federal grants have precise compliance requirements for procurement, cost allowability, and eligibility that grant recipients and subrecipients must follow. The Uniform Guidance 2 CFR Part 200 details the general principles governing federal grants and awards, as well as cost eligibility rules for what can and cannot be done with the funds.  

Moreover, the guidance details ways in which primary recipients may engage outside parties to assist them under the federal grant award and identifies specific criteria to help them classify outside parties as subrecipient or contractor. Below and in Fig. 3 is a general view of the two types of parties:   

• Subrecipient Awards

• • Subrecipients of a federal award are responsible for following the Uniform Guidance, funding agency rules, and are subject to a single audit, if they expend greater than $750,000 during the fiscal year. 

• Contracts 

• • Contractors are typically exempt from most of the reporting and compliance requirements that subrecipients are subject to. There still may be federal rules and regulations that they must follow, but the burden for compliance falls heavier on the grant recipient.

Fig. 3. Primary recipients may engage outside parties as either subrecipients or contractors to assist them under the federal grant award, depending on certain criteria. Information provided by the Code of Federal regulations.

Once the recipient has determined outside parties to assist, there are a few federal programs available to help fund plugging efforts. 

Department of Interior (DOI) Orphaned Wells Program. When President Biden signed the Bipartisan Infrastructure Law (BIL) into law on Nov. 15, 2021, it ushered in one of the most widespread regulatory overhauls on U.S. infrastructure. The BIL, also known as the Infrastructure Investment and Jobs Act (IIJA), outlines guidance, funding, and more for transportation, broadband internet, and environmental projects within the United States.⁵ The efforts are not only a huge investment in addressing pollution, but they also advance environmental initiatives for the future. 

A subset of the IIJA is the Orphaned Wells Program, which provides a $4.7 billion investment in orphaned wellsite plugging, remediation, and restoration on federal, Tribal, state, and private lands across the country.⁶ The program is administered by the U.S. Department of the Interior (DOI), which created two sub-programs for the task at hand: one for states and another for Tribal lands. 

The IIJA-funded program currently awards funds to states and Tribes as primary recipients. These states and Tribes are wholly responsible for setting up a program to plug wells, according to federal guidelines. This could comprise hiring contractors to complete the work identified by the state/Tribe, or the state/Tribe could make sub-awards to private companies (who would then create a well plugging program in accordance with the federal program requirements).  

The DOI allocates $150 million to the Tribal Orphaned Wells Program, in which funds can be used for well plugging, remediation, and restoration purposes. Tribes can use grant funding to establish a well plugging program themselves (in a similar way to how state programs operate). Furthermore, Tribes also have the option to request “In Lieu of Grant” assistance, wherein the DOI oversees responsibility for well plugging on behalf of the Tribe.⁷

In the instance of state/Tribe making sub-awards to private companies, those private companies are then known as subrecipients; thus, they are responsible for the same requirements as that of the state/Tribe and must document and manage the well plugging program in accordance with federal rules. 

Eligible uses for the DOI Orphaned Wells Program. The takeaway for non-state stakeholders is that there are opportunities for operators, plugging and abandonment companies, and other industry stakeholders to participate, since states/Tribes have access to large sums of money for well plugging. Funds from both the state and Tribal programs can be used for the following eligible activities: 

• Locating and inventorying orphaned wells. It is expected that with efforts going to locate previously undocumented orphaned wells, that the backlog of wells to plug across the country will continue to increase and justify the need for additional funding in the future. Some estimates indicate that IIJA funding is just the tip of the iceberg, that existing documented wells will cost between 30% and 80% more than the IIJA allotted funds.⁸

• Plugging and abandoning orphaned wells. Plugging and abandoning companies should keep in mind that IIJA implemented Build America, Buy America (BABA) requirements for procurement. BABA requires that iron and steel, manufactured products, and construction materials used on federally funded infrastructure projects be produced in the United States.⁹ Federal contracting rules also state that contractors on public works projects must pay at least the applicable Davis-Bacon, prevailing wage rates.    

• Restoring land by remediating surface and groundwater contamination. Making historic oil fields safe for use and protecting the groundwater is another key priority of funding. Stakeholders should take into account the ways in which this can be accomplished. It may include hiring engineers, scientists and others to verify that the site has been properly cleaned up and made safe. 

The Methane Emissions Reduction Program (MERP). On Aug. 16, 2022, President Biden signed the Inflation Reduction Act (IRA) into law, “marking one of the largest investments in the American economy, energy security, and climate that Congress has made in the nation’s history,” according to the Department of the Treasury.¹⁰ 

According to the Environmental Protection Agency (EPA), the IRA “provides new authorities under Section 136 of the Clean Air Act to reduce methane emissions from the petroleum and natural gas sector through the creation of the Methane Emissions Reduction Program (MERP).”¹¹ This is a separate federal program administered by the EPA that may also be used to fund orphaned well plugging.   

The EPA notes that MERP is meant “to help reduce emissions of methane and other greenhouse gas (GHGs) from the oil and gas sector and non-GHG emissions, such as volatile organic compounds and hazardous air pollutants. In keeping with the administration’s Justice40 Initiative, MERP will also reduce emissions from oil and natural gas infrastructure in, or near, overburdened communities where people live, work, and go to school.”¹²

When it comes to MERP, fund recipients may receive their awarded funds as an advance or submit costs for reimbursement to the federal funding agency. Typically, the recipient payment method is decided by the funding agency. In some cases, such as the IIJA program and other large federal grant programs paid out to states/Tribes, the funds are provided in tranches or requested on an annual basis.  

MERP grant recipients are required to document each use of funds and retain invoices, proof of payment, procurement information, contracts, and more. Those who receive federal funding should also keep in mind that they will need to comply with all federal grant program rules and regulations.  

MERP funds can be used in a myriad of ways in relation to oil and gas wells. First, they can help small operators significantly reduce methane emissions from oil and natural gas operations. Next, they can accelerate the repair of methane leaks form low-producing wells. In addition, the funds can be used to improve community access to empirical data and monitoring participation, and they can help enhance the detection and measurement of methane emissions from oil and gas operations.¹³

Specifically, MERP funds can be utilized to address methane emissions from marginal conventional wells (MCWs). MCWs differ from orphaned wells, in that they have a known operator and typically produce between 15 boed and 40 boed.¹⁴ Proactively, plugging these wells on the front end may make it less likely that the wells become fully orphaned in the future. The funding also will help small operators adopt innovative technologies to reduce emissions and provide accurate data to impacted communities.  

Eligible recipients of MERP funding. Unlike the IIJA program, MERP funding allows for a broader range of eligible recipients beyond states/Tribes. Eligible recipients include: 

• State and local governments  

• Nonprofit organizations  
• Private sector entities engaged in well plugging and remediation.  

This is a competitive grant program that requires an application pursuant to the funding opportunity announcement,¹⁵ which closed on Aug. 26, 2024. If an organization or stakeholder did not apply to be a recipient of these funds, there may still be opportunities to be a contractor or subrecipient of one of the entities that receive funds.  

Eligible uses. According to the Department of Energy (DOE), MERP funds can be used to accomplish the following objectives:¹⁶

• Help small operators significantly reduce methane emissions from oil and natural gas operations 

• Accelerate the repair of methane leaks from low-producing wells 

• Improve communities’ access to empirical data and participation in monitoring 

• Enhance the detection and measurement of methane emissions from oil and gas operations. 

STATE PROGRAM GRANTS 

State program grants for orphaned wells are overseen by state agencies, Table 1. There are three types of awards available for states to receive.  

Initial grants. Each state may receive an initial grant of either $5 million or $25 million, if that state submitted a request for funding to DOI by May 13, 2022. This funding acted as “seed” money to assist states with establishing plugging programs or increasing existing capacity to plug orphaned wells. Eligible uses for the initial grant funds are inventorying, assessing, plugging, and remediating orphaned well sites.  

Formula grants. Formula grants totaling $2 billion were allocated to states, who will be eligible to request funds in six phases, which fall over a six-year period beginning FY2023. States are allowed to request up to 25% of their allocation in each FY. Formula grants can be used for the same activities as initial grants and apply to wells located on state or private owned land. 

Performance grants totaling $1.5 billion are available in two different programs: 

• Matching grant – a state may receive a Matching Grant equal to “the amount that the state certifies to the Secretary that the ssate will expend, during the fiscal year in which the state will receive the grant” less “the average annual amount expended by the state during the period of fiscal years 2010 through 2019.” A state may receive more than one Matching Grant.¹⁷
• Regulatory improvement – States also can receive additional funds for well plugging, if, during the previous ten-year time period, the state can prove that they strengthened plugging standards or made improvements to policies to make it harder for wells to become orphaned in the first place. States can receive up to two regulatory improvement grants. 

ADDITIONAL STATE FUNDING PROGRAMS 

Aside from the above options, other states have additional grant programs with their own rules and requirements around funds (qualification and spending) for well plugging. This is why stakeholders should research whether their state offers a feasible program that complements their organization’s work. Notable state programs include: 

Texas Well Plugging Reimbursement Program.  

Texas offers a reimbursement program to incentivize the plugging of orphaned wells. Surface owners can recoup a portion of their plugging costs, making it financially viable to address these environmental hazards.¹⁸

California Geologic Energy Management (CalGEM). California developed a methodology to assess and prioritize more than 5,300 orphaned, abandoned, and potentially abandoned wells in California. The methodology considers several factors, including climate benefits, equity, environmental protection, community input, public health, safety, and industry responsibility.¹⁹ 

The Orphan or Abandoned Well Plugging Program (OAWP) in Pennsylvania. This was established under Act 13 of 2012. Eligible participants include municipalities, authorized organizations, institutions of higher education, and watershed organizations. Projects can receive up to $1,000,000 in funding.²⁰

Oklahoma Energy Resources Board (OERB). This department has voluntarily invested more than $156 million to clean up more than 20,000 orphaned and abandoned wellsites in Oklahoma. The OERB follows a practical four-step restoration process, adhering to recognized environmental standards. According to the OERB, more than 700 projects have been referred for potential restoration but remain unclaimed by landowners. The OERB collaborates with the Oklahoma Corporation Commission (OCC) and the Bureau of Indian Affairs (BIA) in Osage County to identify eligible wellsites.²¹

Contractors and landowners, whose states are not listed, can explore whether state-level funding opportunities are available through their respective government entities. 

NEXT STEPS FOR OIL AND GAS STAKEHOLDERS 

Depending on the stakeholders involved in the plugging process, there are multiple ways to take advantage of the influx in funding for orphaned wells initiatives, Fig. 4.  

Fig. 4. Stakeholders involved in the plugging process have multiple ways to take advantage of the influx in funding for orphaned wells initiatives. Information provided by Forvis Mazars, LLP.

Take time to consider the litany of Orphaned Wells Program options and corresponding compliance requirements prior to participation. By leveraging state and federal funding, stakeholders can effectively and economically address orphaned wells through the options available and contribute to environmental protection and public safety. 

If you have questions about orphaned wells plugging opportunities or need assistance, please reach out to a professional at Forvis Mazars. 

REFERENCES 

1. “U.S Census Bureau History: The Oil Industry,” census.gov, August 2021.
2. “Documented Orphaned Oil and Gas Wells Across the United States,” pubs.acs.org, September 26, 2022.
3. “Analysis of the United States Documented Unplugged Orphaned Oil and Gas Well Dataset,” pubs.usgs.gov, August 22, 2022.
4. “Landmark Study Reveals That Millions of Americans Live Less Than a Mile From an Orphaned Oil or Gas Well,” blogs.edf.org, July 11, 2023.
5. “A Guidebook to the Bipartisan Infrastructure Law,” whitehouse.gov, January 2024.
6. “Section 40601 of the Infrastructure Investment and Jobs Act, or the Bipartisan Infrastructure Law,” doi.gov, Nov. 15, 2021.
7. “Tribal Orphaned Wells Program,” doi.gov, 2024.
8. “A New Way Forward for Orphaned Oil and Gas Wells,” artsandsciences.syracuse.edu, June 27, 2023.
9. “M-24-02: Implementation Guidance on Application of Buy America Preference in Federal Financial Assistance Programs for Infrastructure,” whitehouse.gov, October 25, 2023.
10. “Inflation Reduction Act,” home.treasury.gov, August 16, 2022.
11. “Methane Emissions Reduction Program,” epa.gov, June 21, 2024.
12. “Methane Emissions Reduction Program,” epa.gov, June 21, 2024.
13. “EPA, DOE Announce $850 Million to Reduce Methane Pollution from the Oil and Gas Sector,” epa.gov, June 21, 2024.
14. “Funding Notice: IRA: Mitigating Emissions from Marginal Conventional Wells,” energy.gov, 2024.
15. “Financial and Technical Assistance from the Methane Emissions Reduction Program,” epa.gov, 2024.
16. “Funding Notice: IRA: Mitigating Emissions from Marginal Conventional Wells,” energy.gov, 2024.
17. Department of Interior, State Formula Grant Guidance, pg. 24, July 7, 2023. 
18. “U.S. Department of the Interior: Performance Grants,” doi.gov, 2022.
19. “Reimbursement to Surface Owners,” rrc.texas.gov, 2005.
20. “State Oil and Gas Well Plug and Abandonments,” conservation.ca.gov, July 16, 2024.
21. “Orphaned or Abandoned Well Plugging Program (OAWP),” dced.pa.gov, 2024.
22. “OERB Well Cleanup,” oerb.com, 2024.

About the Authors

EVAN MASTERS

Forvis Mazars

EVAN MASTERS is a senior consultant in the public sector advisory practice at Forvis Mazars, LLP, one of the largest accounting and consulting firms in the United States. He provides grants management assistance to clients from various public service industries and has managed funds from numerous federal sources, including the Infrastructure Investment and Jobs Act (IIJA), Inflation Reduction Act (IRA), American Rescue Plan Act (ARPA) and the CARES Act. He is a member of the National Grants Management Association.

DARSHANA SHYAMSUNDER

Forvis Mazars

DARSHANA SHYAMSUNDER is a managing consultant in the public sector advisory practice at Forvis Mazars, LLP. She has more than 13 years of grant administration and project management experience. Her key experience includes grant writing, grants management, strategic planning, and program operations. Her grants management background includes working on projects involving Infrastructure Investment and Jobs Act (IIJA), Inflation Reduction Act (IRA), IRS, CARES Act, and American Rescue Plan Act (ARPA) funding. She is a member of the National Grants Management Association.